Markets are the simple mechanism that determine optimal volumes and prices, based on demand and supply. External infl uences and boundaries, behavior-related imponderabilities, timing eff ects and other “disturbances” complicate real markets, as opposed to simplifi ed market models. Th is also applies to ship-ping markets, the newbuilding and S&P market as well as charter and freight markets. Th is section provides an overview of the drivers of demand and sup-ply for tonnage and transport services and also for shipping market perfor-mance and cyclicality. Th e specifi cs for the dry-bulk, tanker and containership shipping markets will constitute subsequent sections; together these sub-seg-ments represent 27% of all merchant vessels, but make up 76% of gross ton-nage and, presumably, a similarly high share of the total fl eet value. In many of the smaller segments, the vessels are designed and built for a specifi c charterer (e.g. ferries and cruise ships as well as off shore) rather than for a general market, which results in less liquidity and markets with many characteristics. Hence, a detailed discussion of these segments would exceed the scope of this book.
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1.2.1 Demand for Transport Capacity
Th e development of the world economy, measured in gross domestic prod-uct (GDP), is the fi rst and most important driver for shipping markets.
Nevertheless, it is obviously less the pure number of “global GDP” which is driving the need for transport work but more the way the regions interact and generate global GDP. Some global megatrends underlie economic develop-ment. Fang et al. ( 2013 ) assume the global population will grow from 6.9 billion people in 2010 to about 8.0 billion people in 2030, with 96% of population growths coming from developing countries. Th e population in developed countries will decline, in turn, and increase signifi cantly in age.
Urbanization will continue, with more and more megacities being located by the sea and having direct access to international trade.
Political decisions co-determine how the global megatrends translate into trade and shipping. Are capitalism, free trade and Western lifestyle the aim of sociocultural evolution? What would these mean in terms of resource require-ment and production? How will we react to climate change and global debt?
Is inequality needed to fuel economies? Diff erent answers and political path-ways to these questions are conceivable and will aff ect shipping. Regional trade blocks in Europe (the EU), North America (NAFTA), Southeast Asia (ASEAN), among others, may continue to stimulate trade within their own areas. Th e World Trade Organization (WTO) may come to further global free trade agreements, reducing the relevance of regional trade blocks. A back-wards trend with more economic sanctions, isolation and nationalization of economies is also possible.
Under the more likely political pathways, some economists estimate global GDP will more than double or nearly triple between 2010 and 2030, with China as one of the main drivers, potentially resulting in a 20% share of global GDP in 2030, and India and Brazil as new entrants into the global Top 5 besides the USA and Japan (Fang et al. 2013 ). Th ese economists assume the purchasing power in Asia will increase by a factor of 8 by 2030, while granting a factor of 3 only to the OECD countries.
However, looking ahead, many uncertainties have the potential to aff ect trade fl ows and shipping. Geopolitical and social confl icts, such as the tense situation between Ukraine and Russia or the Arab Spring and radicalization in some Islamic countries in the Middle East, limit economic development and trade in these regions. Environmental regulation impacts upon trade fl ows (e.g. an accelerated nuclear phase that drives out the trade in liquefi ed natural gas (LNG) ). Economic challenges lie in the high debts of coun-tries and private households, and an excess of liquidity due to cheap central
bank money (stimulus packages) along with a defl ation risk and devaluation of certain currencies, leading to drastic eff ects on exchange rates (currency war). Kim ( 2014 ) argues that an “end of normal” scenario (high debt, no or negative growth) is 40% probable, that a “new normal” (high debt, slow growth) is 50% probable, while attaching just a 10% probability to the
“back to normal” scenario (high debt, strong growth). Th e nearly “tradition-ally” good prospects for China also seem to have become cloudy lately. A cooling down of the real estate boom bears some risk for the hard landing of the shadow banking sector. Despite growth rates of still about 7%, China’s decelerating GDP growth seems to have begun to follow the earlier trends of more mature economies such as Taiwan, South Korea and Japan (De la Rubia 2014 ).
Th e question now is how global GDP—or rather the way the regions col-laborate and generate global GDP—can translate into seaborne trade. Th e basic economic principles of the “division of labour” (Adam Smith, 1776, in Th e Welfare of Nations ), the “comparative advantages” of nations and their eff ects on foreign trade (David Ricardo, 1817, in On the Principles of Political Economy and Taxation ), and globalization with continued relocation of pro-duction and processing from developed to emerging countries are well under-stood. According to Stopford ( 2009 ) the “west line” in the development of sea trade started in 3000 BC in Mesopotamia. While these classical theories apply evidently to trades between countries with diff ering factor endowments (e.g. raw materials), they seem to lack reasoning regarding intra-industry trade, which means export and import of the same type of goods by one country (e.g. cars from Germany to Korea and back). However, as the “same type of good” does not mean the “same product”, intra-industry trade can be understood via economies of scale by limiting the variety of production in one country while exchanging with another (the “new trade theory” attributed to Paul Krugman).
It is diffi cult to forecast seaborne trade based on the development of global economic indicators. Looking at seaborne trade in total—not yet at specifi c segments—economists are not very successful in their attempts to correlate GDP growth with trade growth. Even the International Monetary Fund (IMF) and leading banks don’t have a conclusive explanation as to why 3.4%
GDP growth in 2012 resulted in just 2.8% trade growth, while 3.9% GDP growth resulted in 5–6% trade growth in 2015 (Kounis 2014 ). Also, the indicator “seaborne trade per capita”—with 2.5–5.5 tons in OECD coun-tries, about 1.5 tons in China and below 1.0 tons in most of South America, India and Africa—is just an indication that the latter countries will catch up in trade volumes (Clarkson Research Services Limited 2014 ). Obviously,
a segment specifi c perspective is needed to forecast shipping markets, rather than a bottom-up approach, segment by segment.
1.2.2 The Supply of Transport Capacity
Th e supply side of shipping markets is determined by the existing fl eet, new-buildings and scrapping. Th e laying-up of vessels and the variation of vessel speed off er some fl exibility to react to supply–demand imbalances. A high level overview of the existing fl eet was given in the previous section 1.1.2.
According to Clarkson Research Services Limited ( 2014 ), historical new-building orders had an average of about 2,200 merchant vessels and about 65 million GT per year in the time frame 2000–2013. With less than 20 million GT, average annual scrapping was by far lower, resulting in an annual fl eet growth of 4.9% (in GT) during 1996–2013, with a peak of 6.5–8.0% in each year between 2005 and 2011. Th is compares to a growth in tonnage require-ment (trade) of 3.9% in the time frame 1996–2013.
Newbuilding and scrapping activities are increasingly pushed by changes in regulatory boundaries, infrastructural limitations and factor costs. On the regulatory side especially, environmental requirements (double hulls for tankers in the 1990s, sulfur emission limitations in emission control areas in the 2000s and upcoming ballast water treatment) have put pressure on existing vessels and accelerate their economic aging. Increasing bunker prices and upcoming ECO designs with 30% better energy effi ciency at today’s operating profi les force less effi cient vessels to leave the market. Th e “cascad-ing eff ect” of us“cascad-ing the largest possible design on a given route acts in the same way. Also, the extension of the Panama Canal and the Suez Canal, the newbuilding of the Nicaragua Canal and the potential opening of the Arctic route will shake up the existing fl eet and open up opportunities for larger vessels with lower specifi c transport costs.
Th e slowing down of vessels during the current shipping crisis in order to benefi t from lower bunker costs per 1,000 cargo miles had a positive side eff ect for shipowners. In the container segment about 2.0 of 17.0 million TEU (12%) are absorbed compared to pre-crisis speed patterns (Alphaliner 2015 ). Th e laying-up of vessels has a similar eff ect: capacity is temporarily removed from the market. Visibility is best in the container sector, as vessels are typically on time charter contracts. As late as 2014/early 2015, 110–120 vessels with a total capacity of 230,000 TEU have been laid up, equaling 1.3% of the total container fl eet. During the trough of the crisis, lay-ups peaked at nearly 600 vessels, fi ve times as many as today (Alphaliner 2015 ).
More specifi c developments on the supply side in dry-bulk, tank and con-tainer shipping will follow in the respective chapters below.